Bank of Japan countdown almost over According to Reuters

© Reuters. FILE PHOTO: Bank of Japan employees walk between the BOJ headquarters buildings in Tokyo, Japan September 20, 2023. REUTERS/Issei Kato/File photo

By Jamie McGeever

(Reuters) – A look at the next day in Asian markets.

The Bank of Japan’s policy decision and subsequent remarks by Governor Kazuo Ueda will dominate Asian markets on Tuesday, perhaps giving investors a glimpse of how big the differences between the BOJ and other major central banks will be next year.

While markets expect the Fed, European Central Bank and Bank of England to be at the end of their hiking cycles and headed for rate cuts next year, the BOJ is just emerging from years of negative rates and very loose policy.

While no one expects the BOJ to raise rates on Tuesday, the breakthrough could come sooner than many expect – the BOJ has already surprised markets with adjustments to its “yield curve control” policy and intervened to buy the yen in the foreign exchange market, so who’s to say that won’t they raise rates in january?

On Monday, the Japanese yen weakened, the benchmark stock index fell and 10-year Japanese government bonds rose, pushing the yield down about 4 basis points.

The yen has been one of the best performing G10 currencies this month thanks to growing hawkish speculation around the BOJ, and has gained nearly 4% against the dollar since the turn of the month. This follows a 2.5% increase last month.

Further yen strength will help the BOJ in its fight to sustainably return inflation to its 2% target, and households will welcome downward pressure on import prices, but will hurt exports, which have traditionally been the main engine of economic growth.

Hedge funds have been net short the yen since March 2021, according to Commodity Futures Trading Commission data, but a move is underway ahead of this seismic rate move from the BOJ whenever it happens.

The latest CFTC data shows funds’ net short position is now the smallest in four months at 81,000 contracts. That’s a total bet of $7 billion against the yen, down from $11 billion just a few weeks ago.

Elsewhere on Tuesday, the Reserve Bank of Australia publishes minutes from its last meeting, when it held rates at a 12-year high of 4.35%.

Asian shares fell 0.5% on Monday, the steepest drop in two weeks, but that was perhaps to be expected given a 3% rise late last week after the Fed signaled that US rate hikes were over and the focus now at the beginning of the release cycle.

On the corporate front, Japan’s Nippon Steel ( 5401.T ) struck a deal on Monday to buy U.S. Steel ( XN ) for $14.9 billion in cash, a bet that U.S. Steel will benefit from spending and tax incentives in the bill President Joe Biden on infrastructure. .

While Nippon Steel shares are some 15% off their recent high, they are up 50% over the past 12 months.

Here are the key developments that could steer markets better on Tuesday:

– Bank of Japan policy decision

– A note from the Reserve Bank of Australia

– New Zealand store (November)

(Writing by Jamie McGeever; Editing by Josie Kao)